from the oh-come-on dept

There has been plenty of discussion about ridesharing services lately, and whether they should be subject to the same sorts of regulations as taxis. As we've discussed, while taxi regulations have some historical basis in protecting riders from scammers, most of that was for a time when there was significant information asymmetry between drivers and riders, making it much easier for drivers to scam, rip off or endanger passengers. The wonderful thing that services like Uber, Lyft and Sidecar do is get rid of much of that information asymmetry and risk. The drivers are rated and monitored. The services handle the payment terms. The regulations that once served a purpose are less and less important. And, of course, then the reality starts to become clear. Where those regulations may have once had some benefit for the public, these days, they're much more about limiting competition, keeping prices artificially high and limiting new forms of innovation.

That's become especially clear in the last few days, where the California Public Utilities Commission (CPUC) has alerted Uber, Lyft and Sidecar that their new carpooling offerings are illegal. All three companies recently introduced a rather useful innovation that actually makes it much more accurate to call these services "ridesharing." By enabling "carpooling," the services find multiple people heading in the same general direction, and put them in the same car, allowing all of them to get a cheaper fare. It's the kind of useful innovation that seems like it's better for everyone. But, not the CPUC. In the world of the CPUC, you can't innovate if you haven't first groveled for permission:

Basically, the CPUC says that under California law it's illegal for these ride-sharing services to charge passengers an individual fare when carrying multiple people in one vehicle. If the companies would like to add a carpool feature, they first have to request an adjustment to their existing permits with the CPUC or petition the state legislature to modify the law.

Some people like to mock the idea that these companies like to innovate first and deal with the regulatory issues later -- and there may be something to that. But anyone who's ever worked in a setting where innovation is happening knows that having to ask for permission is a recipe for no innovation. California has a long history of enabling innovation. It would be quite a sad state of affairs for it to go the other way.

from the ethics-vs.-loyalty dept

Cross-posted from

A deadly explosion killed eight people and destroyed 38 homes in San Bruno, California on September 9, 2010. The cause of the destruction was a natural gas pipeline owned by Pacific Gas & Electric that ran underneath the homes.

The subsequent investigation turned up a litany of failings on PG&E’s part that contributed to the explosion. PG&E’s regulator, the California Public Utilities Commission, issued a recommendation that PG&E pay no fine, noting that the money the company was spending to modernize its pipelines to prevent future accidents was punishment enough.

This is when a number of CPUC attorneys took a stand against their boss, and their boss clumsily aired the office turmoil in public. And, yes, this all eventually involves the Taliban and a gun-toting enforcer...

A number of attorneys for CPUC refused to agree to this recommendation and suddenly disappeared from the case. As Jaxon Van Derbeken of the San Francisco Chronicle reports:

The commission’s head of safety, Jack Hagan, and its general counsel, Frank Lindh, said last week that four members of the attorney team had asked to be reassigned, just days before the agency was to file its case for penalties against PG&E for the 2010 disaster that killed eight people.

If you’re still reading, it should come as no surprise that the “reassigned” lawyers disagreed with this interpretation. From the Chronicle again:

On Friday, Morris sent an e-mail to Lindh asking that he “cease immediately your defamatory representations that I and the other attorneys in the San Bruno (matter) voluntarily left the case.”

The Chronicle obtained a copy of the e-mail from a third party. Morris has declined to comment on the dispute.

In his e-mail, Morris said his team did not spend more than two years on the case, drafting hundreds of pages of briefs, so it could walk away from the case at the last minute.

“How could you or anyone else even question our commitment to ensure that such a tragedy should never happen again?” Morris said. “Your statements about us omit any mention of the fact that we refused to sign a reply brief, that we felt was unethical. Because you did nothing to resolve our ethical concerns, one attorney asked to be taken off the case, and you then claimed that all of us asked to be reassigned.”

Morris, who has worked for the commission for 31 years, added, “Anyone who knows me would question your statement that we voluntarily left.”

That’s the classic bar admission ethics query: what do you do when your boss asks you to do something unethical? This isn’t to say that Lindh was acting unethically. This is just to say that the general counsel of PG&E’s regulator used to work for PG&E and — over the objections of his staff — pushed for giving PG&E a no-penalty sweetheart deal. That’s all we’re saying.

The suggestion that the proper penalty for lapses that killed eight people is “bring your pipeline up to snuff” is troubling. It would seem as though building pipelines that don’t spontaneously combust should be par for the course and then there should be something out there to incentivize PG&E to not wait for the next explosion to look into the infrastructure they use to carry highly explosive material underneath houses. But maybe that’s just me.

After taking the weekend to mull over the charge that he was defaming his staff and committing ethical violations, Frank Lindh decided the appropriate response was to publicly air all of this in a keynote address to the National Conference of Regulatory Attorneys. From The Recorder:

Frank Lindh, the CPUC’s embattled general counsel, surprised the crowd — and his own staff — with a speech about a “hypothetical” state utility regulator whose staff attorneys needed to learn a lesson about loyalty and good judgment.

On hand were regulators from around the country who watched as Lindh’s own staffers heckled him for what they saw as a veiled attack on his legal team. The tense scene offered a glimpse of the firestorm within the CPUC’s legal department as it deliberates the financial penalty against Pacific Gas & Electric Co. for its role in the deadly 2010 San Bruno explosion.

Getting heckled by the staff for a petulant rant is not the recipe for a successful keynote. It is, however, the recipe for a speech I’d have loved to watch live. The speech is a comical read (transcript reproduced below), calling out the disloyalty of a hypothetical lawyer in his dealings with “Stella Artois.” I see what he did there.

This whole affair did not sit well with other CPUC’s lawyers:

“I feel compelled to say that your decision to give this speech, which was a thinly veiled critique of the actions of the San Bruno attorney team, demonstrated very poor judgment,” Assistant General Counsel Helen Mickiewicz wrote Monday afternoon in an email sent to Lindh and copied to many other CPUC attorneys. “What is NOT appropriate is for you to take your case public, arguing your position in the press, and then today, before a hundred attendees from all over the country at a regulatory conference.”

But maybe we should cut Lindh some slack. He’s had a rough decade or so. His son is John Walker Lindh, who you might remember as the “American Taliban.”

Is there any way this could get crazier? Insert allegations that Lindh had a gun-toting sidekick who threatened lawyers to get on board with the deal? Sure! The San Francisco Chronicle again:

The head of safety enforcement for the California Public Utilities Commission denied Tuesday that he had threatened state attorneys in a dispute over whether to fine Pacific Gas and Electric Co. for the San Bruno disaster and said he is entitled to carry a gun in the agency’s offices – though he said he hadn’t done so recently.

Jack Hagan acknowledged that the exchange with the attorneys had become heated. But he described himself simply as “an exasperated client” who was trying to get his attorneys to help him make a case that the money PG&E is spending to improve its natural-gas transmission system is sufficient penalty for the 2010 pipeline explosion that killed eight people.

Hagan also confirmed that he had packed a concealed gun in the commission’s San Francisco offices since becoming head of the safety division in 2012, but that he had stopped doing so several months ago after a staffer complained of feeling uncomfortable about it.

Several of the attorneys who had been working on the regulatory case against PG&E raised Hagan’s conduct as an issue in confidential e-mails to their boss, which The Chronicle obtained from a third party this week.

On Tuesday, several CPUC attorneys wrote a letter to Lindh that Above the Law has received from a third party (reproduced in full on the third page):

It also appears that you subscribe to the view, expressed by the Director of the Safety and Enforcement Division, that the client is the boss in Commission proceedings and the attorneys must simply obey, regardless of whether the actions involved are of questionable ethics and legality. We think that this view represents a lack of understanding of the Legal Division’s duty to the public, the Commission, and the State of California.

This brings us to the present. It sure sounds like a mess out there in California. But this whole affair highlights once again the dangers of a revolving door regulatory system. When an attorney who served as general counsel of a PG&E subsidiary becomes PG&E’s regulator, no one can be too surprised that the proper penalty for killing 8 people is, “carry on about your business.”